Wall Street dips as USD 100 oil, inflation worries weigh on investors

Wall Street ended lower on Wednesday, with oil prices still stuck at over USD 100 a barrel, as ongoing Gulf tensions and inflation fears weighed on investors.

All three major US indices ended the day lower. The Dow Jones Industrial Average ended down by 0.77%, the S&P 500 dropped 0.48% and the Nasdaq Composite shed 0.64%. MSCI's gauge of stocks across the globe was down 0.52% following the US market close.

Stocks were negative all day, as headlines also focused on oil prices surging past USD 100 a barrel for the first time since July. Iran said it had attacked 10 ships near the Strait of Hormuz after the US sank five Iranian oil tankers.

Brent crude settled up 3.4% on the day, or USD 101.21 a barrel. US West Texas Intermediate crude was up USD 3.02, or 3.25%, at USD 96.05 a barrel. Both were the highest closing prices seen since May.

At the same time, yields on benchmark US 10-year notes rose 3.66 basis points to 4.841%, hitting levels not seen since November 2023, after the Treasury Department announced it would buy up to USD 6 billion in 10-to-20-year government bonds. The buyback was higher than the USD 4 billion the Treasury had signaled earlier. Some analysts had expected a larger purchase to support longer duration bonds.

"Brent breaking above USD 100 is a major psychological milestone for markets, but the bigger concern is what this means for inflation. A prolonged oil shock could keep price pressures elevated and complicate the path for central banks that are already navigating a difficult policy environment," said Lukman Otunuga, head of market research at FXTM.

CENTRAL BANK DECISIONS AHEAD

The euro edged higher ahead of the European Central Bank's policy decision on Thursday, with markets widely expecting a rate hike due to inflationary pressures from the Iran war.

The yen strengthened toward the nearly seven-month high touched against the dollar on Tuesday as traders exited short positions in the Japanese currency. Expectations are building for faster Bank of Japan rate hikes and a potential rush of repatriation of Japanese capital.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.05% to 98.83.

US producer and consumer price reports are set to be released later this week, with policymakers looking for further evidence that inflation pressures are continuing to cool.

The latest Reuters survey of economists found about 70% expect the Federal Reserve to keep rates steady at its policy meeting next week, below the 90% expectation of steady rates in August.

"Financial markets remain genuinely divided over whether the FOMC will raise rates at next week's September meeting, an unusual state of uncertainty this close to a decision date," said Matthew Ryan, head of market strategy at global financial services firm Ebury.

Gold was up 0.98% to around USD 4,396 an ounce.

(Reporting by Kevin Buckland, Sruthi Shankar, and Pete Schroeder; Editing by Toby Chopra, Ros Russell, Chizu Nomiyama, Deepa Babington, and David Gregorio)